EUR/USD Weekly Forecast: Could the Nonfarm Payrolls report confirm the monetary policy shift?


Share:
  • Easing inflation figures fueled speculation central banks will refrain from hiking rates further.
  • The focus shifts to United States data next week, featuring the Nonfarm Payrolls report.
  • EUR/USD turned bearish after meeting selling interest around a Fibonacci resistance level.

The EUR/USD pair started the week on a strong footing but lost momentum and is set to close the week in the red, well below the 1.0900 mark. Market participants mainly traded on sentiment, betting against the US Dollar amid optimism about a change in the monetary policies’ tightening cycles worldwide.

European Central Bank officers take down the tone

European Central Bank (ECB) President Christine Lagarde gave different speeches throughout the week, repeating her well-known message about the risks of higher inflation and the need to keep interest rates higher for longer. However, different ECB officials eased their tone and started skewing to the dovish side. ECB Governing Council member Yannis Stournaras warned about premature bets on rate cuts but added he would expect such a move in mid-2024, earlier than that could be a bit optimistic, according to Stournaras.

Also, ECB executive board member and Governor of the Bank of Italy Fabio Panetta said that the current interest rates level is consistent with bringing inflation down to target and warned about the “unnecessary damage” the ECB could cause through sustained high-interest rates.

Furthermore, the Euro dived on Thursday amid rumors suggesting the central bank could pause the Pandemic Emergency Purchase Programme (PEPP) reinvestments in the last days of 2023 on low liquidity.

At this point, financial markets are pricing a first ECB cut in April.

Dovish surprise from Federal Reserve officials

Across the pond, dovish comments from Federal Reserve (Fed) officials shocked investors. Fed Governor Christopher Waller said that the recent slowdown in economic activity is encouraging, as it may indicate that the monetary policy is tight enough to contain inflation. Waller added that if inflation continues to fall for several more months, the central bank could lower the policy rate.

Meanwhile, Chicago Fed President Austan Goolsbee said overall, there has been progress on inflation, noting that "it's been coming down, it's not yet down to target but 2023 we're on path to set the highest drop in the inflation rate in 71 years."

Macroeconomic data points to no more rate hikes

Inflation took centre stage these last few days, with figures fueling optimism as price pressures declined at both shores of the Atlantic. Germany’s Harmonized Index of Consumer Prices (HICP) inflation printed at 2.3% YoY in November, easing from 3% in the previous month. The Eurozone HICP in the same period was up 2.4%, down from 2.9% in October.

Finally, the United States (US) published the October Personal Consumption Expenditures (PCE) Price Index, the Fed’s favorite inflation gauge. According to the Bureau of Economic Analysis (BEA), the core annual PCE Price Index rose 3.5% YoY, as expected, yet below the 3.7% recorded in September.

Meanwhile, the US upwardly revised the Q3 Gross Domestic Product (GDP), which registered an annualized pace of growth of 5.2%. German Retail Sales came in better than anticipated, up 1.1% MoM in October.

Finally, the US published the ISM Manufacturing PMI, which resulted at 46.7 in November, matching October reading and missing expectations of 47.6.

Focus shifts to employment  

Overall, data suggests that growth remains solid while inflation continues to recede. The labor market needs to loosen further for central banks to confirm a monetary policy shift. Speculative interest keeps increasing bets on soon-to-come rate cuts among major economies and prefers to ignore warnings from policymakers that rates will remain higher for longer.

The macroeconomic calendar has little interest figures next week. Multiple ECB officials will be on the wires on Monday, but silence will reign among US policymakers ahead of the December monetary policy meeting. The Eurozone will release a revision of the Q3 GDP. Still, the focus will be on US employment figures, as the country will publish the Nonfarm Payrolls report on Friday, preceded by the usual ADP survey, JOLTS Job Openings, quarterly Unit Labor Cost and Nonfarm Productivity reports.

EUR/USD technical outlook

The EUR/USD pair briefly traded above the 61.8% Fibonacci retracement of the 1.1275/1.0447 slide at 1.0960, ending the week below the 50% retracement at 1.0861. The fact that such a critical resistance level held, is quite a sign for sellers, as it opens the door for another leg south.

The weekly chart for EUR/USD shows the positive momentum has receded. Technical indicators have lost their bullish strength and turned neutral-to-bearish within neutral levels. At the same time, the pair remains above its 20 and 100 Simple Moving Averages (SMAs), but they head marginally lower, suggesting declining buying interest.

Technical readings in the daily chart anticipate that EUR/USD can extend its slide. Technical indicators head firmly south, although they still develop within positive levels. At the same time, the 20 SMA is partially losing its bullish strength while holding above the longer ones, all of them below the current level.

The main resistance level is 1.0960, with a break above it exposing the recent multi-month high at 1.1016. Once above the latter, EUR/USD can extend its advance towards the 1.1060 price zone. On the flip side, if the pair remains below 1.0860, a test of 1.0790 comes into sight, while once below the latter, 1.0740 comes as the next support level en route to 1.0690.

Economic Indicator

United States Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews ​and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Read more.

Next release: 12/08/2023 13:30:00 GMT

Frequency: Monthly

Source: US Bureau of Labor Statistics

Why it matters to traders

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended Content


Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended Content

Editors’ Picks

EUR/USD holds steady above 1.0800, as German/ US inflation data loom

EUR/USD holds steady above 1.0800, as German/ US inflation data loom

EUR/USD is trading sideways above 1.0800 in the European morning on Thursday. The pair stays underpinned by the renewed US Dollar weakness. But further upside remains elusive ahead of the key inflation data from Germany and the US. 

EUR/USD News

USD/JPY remains heavy below 150.00 on BoJ Takata's hawkish signals

USD/JPY remains heavy below 150.00 on BoJ Takata's hawkish signals

USD/JPY is consolidating steep losses below 150.00, having tumbled on hawkish comments from BoJ policymaker Takata. Takata hinted at a likely policy pivot, sending the Japanese Yen higher across the board. US PCE inflation data is next on tap. 

USD/JPY News

Gold could regain $2,050 on soft US Core PCE inflation data

Gold could regain $2,050 on soft US Core PCE inflation data

Gold price is trading in the green zone for the second straight day early Thursday, stretching toward the two-week high of $2,041. A broad USD selling amid an improvement in risk sentiment is underpinning the Gold price ahead of the all-important PCE data due later in the day.

Gold News

Bitcoin ETF success could see Ethereum alternative soon, says Jim Cramer

Bitcoin ETF success could see Ethereum alternative soon, says Jim Cramer

Following the landmark approval of multiple spot Bitcoin exchange-traded funds (ETFs) on January 10, this has been the abounding theme in the cryptocurrency market. 

Read more

The Fed's favoured measure of inflation on tap “the PCE deflator“

The Fed's favoured measure of inflation on tap “the PCE deflator“

Unless you were out caving, like Lando Norris was and missed out on when the Lewis Hamilton to Ferrari news broke, you likely heard that Equities hit fresh record highs last week in several markets from Europe to Japan.

Read more

Majors

Cryptocurrencies

Signatures